First Resource Bank, Exton, PA (FRSB)

A Case of Doing Pennsylvania Proud

First Resource is my kind of bank. It offers good old fashioned, treat-your-customer-right community banking, and is unfollowed by any Wall Street analyst.

If you know any Pennsylvanians who'd appreciate an opportunity to double their money by investing locally, spread the word! I'd love to see them move their Wells Fargo or Bank of America accounts to First Resource Bank, buy some FRSB stock, and come along for the ride.

In three years, FRSB should be earning over $1.00 per share, reach book value of $10, and trade at $15.

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Disclosure: As of this posting, I own shares of FRSB and may subsequently either dispose of them or purchase more.

Prospective Buyers	Acquiring First Resource Bank would vault any of these local competitors up to a solid third place in marketshare, behind Bank of America (BAC) and BB&T (BBT). Isn't that what we want — more of America's community banks competing powerfully against the Too Big To Fail banks? Bryn Mawr Bank Corp, Bryn Mawr, PA (BMTC) DNB Financial Corp, Downington, PA (DNBF) Fulton Financial Corpo, Lancaster, PA (FULT)
Financial Snapshot †09/30/2017	Total assets: $249M† Tangible book value per share:    $8.72† NPAs to assets: 2.4% Price to book: 112%† Market cap: $25.7M Dividend yield: 0% Trailing 12-month ROA: 0.7%† Trailing 12-month ROE: 8.5%† TARP: $0M* *Redeemed $2.6M 09/15/2011
Luminaries	James Griffin, Chairman Glenn Marshall, President and CEO Lauren Ranalli, Executive VP, Secretary, and CFO
Gold Stars	Great People - I first learned about First Resource Bank from the proprietor of Honesdale's Hotel Wayne, who is also a top-notch bank investor. He introduced me to Glenn Marshall, who started the bank in 2004, built it from nothing, and manages it with transparency and integrity. Great Market - Both branches of First Resource Bank are in Chester County, which is one of the best banking markets in the State of Pennsylvania. It has the state's highest median household income ($86K) and benefits from both a low unemployment rate (3.4%) and proximity to Philadelphia. Great Banking - First Resource Bank runs lean on equity, is a low-cost provider, and consistently keeps expenses close to 2.5% of assets. I also appreciate that the board and management are heavily invested in FRSB, owning nearly 25% of the stock. Great Opportunity - FRSB has lots of room to grow. Within five miles of the bank's two branches lie $5B in deposits. In the wake of the mergers of National Penn Bank (NPBC) and Susquehanna Bank (SUSQ) into BB&T (BBT), First Resource has an opportunity to pick up talent and customers, as well.
Sources	First Resource Bank website 2016 Annual Report SNL Financial Confidential interviews with management and shareholders

UPDATE: Franklin Financial Services, Chambersburg, PA (FRAF)

I'd like to plant a new seed for this money tree.

Since my August 2012 review, Franklin Financial has grown in value just as I had predicted.

Although not the screaming bargain it was back then, given another three years, FRAF should trade at 150% of its estimated book value of $31 or $47 per share.

Were Management to list FRAF on the NASDAQ, the stock would be eligible for inclusion in the Russell Index and trade more in line with its peers. (The average NASDAQ bank stock trades for 186% of book value and 21x earnings.)

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Disclosure: As of this posting, I own shares of FRAF and may subsequently either dispose of them or purchase more.

Prospective Buyers	F&M Trust's low 23 bps of funding costs, #1 marketshare position in Franklin County, and #2 position in Fulton County make the bank a very attractive franchise for acquisitive neighbors like these: F.N.B. Corporation, Pittsburgh, PA (FNB) Fulton Financial Corporation, Lancaster, PA (FULT) Northwest Bancshares Inc., Warren, PA (NWBI)
Financial Snapshot †as of 03/31/2017	Total assets: $1.13B† Tangible book value per share:    $25.47† NPAs to assets: 1.6%† Price to book: 113.4% Market cap: $135.2M Dividend yield: 3.1% Trailing 12-month ROA: 0.8%† Trailing 12-month ROE: 7.2%†
The Crew	G. Warren Elliott, Chairman Timothy G. Henry, President and CEO Mark R. Hollar,  Senior VP, Treasurer and CFO
The Skinny	If the crew at Franklin Financial Services takes me up on my suggestion to list FRAF on NASDAQ, and FRAF starts to trade in line with its peers, the stock could trade for $44 pretty quickly. Improvements at Franklin Financial since my 2012 review Transaction accounts now make up 43% of F&M Trust's deposits, versus 29% five years ago NPAs are down to 1.6% and still declining  Dividend yield is pretty high at 3.1%, and now rising Other things to like about this deeply rooted Pennsylvania money tree The bank's markets have grown, and its share of those markets has, too Merger activity has lessened the competition making FRAF more valuable FRAF does not get the credit it deserves for its solid and growing trust business, which has $725M in assets Going forward I expect FRAF will consistently earn over 1% on assets and 10% on equity
Sources	F&M Trust website March 2017 Investor Presentation SNL Financial Confidential interviews with shareholders and analysts

UPDATE: Embassy Bancorp, Bethlehem, PA (EMYB)

Clearly, the bankers in charge at Embassy still know how to pack a punch. As I predicted in my 2013 review, CEO David Lobach and his colleagues have succeeded in doubling the bank's value. In fact, they've done better than I predicted, accomplishing this growth "organically" versus sale of the bank. EMYB is up 120%, and assets are up 50%.

I see no reason why this team can't grow EMYB another 50% over the next four years. If I'm right, Embassy's stock could trade for $30 on its own by 2021, giving investors another chance to double their money.

Lobach is 67 and has certainly earned the right to cash in on his 500% change in control provision any time he likes. I'd be just as happy to see him keep running at full steam ahead for another four years, first. Either way, he's done right by the bank, its customers, its shareholders, and his own family.

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Disclosure: As of this posting, I own shares of EMYB and may subsequently either dispose of them or purchase more.

Prospective Buyers	The M&A scene in Embassy's back yard is so hot that two of the institutions I had listed as prospective buyers in May 2013 have since been acquired, themselves — First Niagara Financial Group, Buffalo, NY (FNFG) and National Penn Bancshares, Boyertown, PA (NPBC). Fulton Financial Corp, Lancaster, PA (FULT) Provident Financial Services, Iselin, NJ (PFS)
Financial Snapshot †as of 03/31/2017	Total assets: $963M† Tangible book value per share: $10.15† NPAs to assets: 0.66%† Price to book: 145% Market cap: $110M Dividend yield: 0.9% Trailing 12-month return on assets: 0.83%† Trailing 12-month return on equity: 10%†
Luminaries	David Lobach, Jr, Chairman, President, CEO Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO James R. Bartholomew, Executive VP
Gold Stars	I still love how efficient and committed Embassy is! In some ways the bank is operating even more efficiently now than it was four years ago, especially considering that its peer group is now comprised of only the strongest players. Employees per branch. In 2013, Embassy Bank had just 70 employees across 7 branches and was operating 30% to 90% more efficiently than its peers. Today, Embassy has just 83 employees across 8 branches, and is now operating 30% to 100% more efficiently than its peers. Assets per employee. In 2013, Embassy Bank had whopping $9.2M in assets per employee and was operating 50% to 100% more efficiently than its peers. Today, Embassy has $11.6M in assets per employee and is still operating 30% to 60% more efficiently than its peers. Insider ownership. In 2013, insiders owned an impressive 32% of EMYB stock worth $15M and Embassy Bank managers and directors were 3x to 20x as invested in their bank's success as their peers in other banks. Today, insiders own 27% of EMYB stock worth $30M, and Embassy managers and directors are still 3x to 4x as invested as their industry peers.
Sources	Embassy Bank website May 2017 10-Q 2017 Proxy Statement SNL Financial Confidential interviews with shareholders and analysts

Delmar Bancorp, Salisbury, MD (DBCP)

A Case of Bordering on a New Frontier

DBCP is priced too low. Delmar Bancorp's performance has crossed over into new territory and the stock doesn't reflect it, yet. Other banks of similar profitability trade at 150% of book or better.

NPAs less TDRs are 1.2%, ROE is approaching 10%, and book value has grown 22% since 2013. At this rate, book value will surpass $7 in three years, and DBCP could easily trade at $11.

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Disclosure: As of this posting, I own shares of DBCP and may subsequently either dispose of them or purchase more.

Prospective Buyers	The Bank of Delmarva holds 12% of the Salisbury, MD and Seaford, DE markets, is the only bank in Delmar, MD and Dagsboro, DE, and shares territory with these three banks: Fulton Financial, Lancaster, PA (FULT) WSFS Financial, Wilmington, DE (WSFS) Xenith Bancshares, Richmond, VA (XBKS)
Financial Snapshot †as of 12/31/2016	Total assets: $512M† Tangible book value per share: $5.62† NPAs to assets: 4.4%† Price to book: 107.3% Market cap: $49.6M Dividend yield: 1.3% Trailing 12-month return on assets: 0.8%† Trailing 12-month return on equity: 8.6%† TARP: $0M* *Redeemed $9M 1/29/2013
The Crew	Jeffrey F. Turner, Chairman Edward M. Thomas, President and CEO John Breda, Chief Credit Officer, successor CEO
The Skinny	Six ways that Delmar Bancorp is on a border* Bank of Delmarva branches literally straddle the Delaware - Maryland border Delmar Bancorp is on the border between privately held and public (DBCP doesn't trade much, and one investor — Ken Lehman — controls 41% of the shares) The company is borderline too small for brokerage firm analysts to follow it (None do) The Bank of Delmarva is about to cross a border into the prestigious top 25% of U.S. banks earning 1% on assets and 10% on equity The bank is at a management border, too, as CEO Ed Thomas retires in June and John Breda prepares to take the helm Delmar's Board is at a strategic border where the "sell or stay the course" question tends to arise * All of which are way better than the borderline between survival and failure on which Delmar was teetering in 2011, with a Texas ratio near 120% and NPAs well over 10% of assets.
Sources	Bank of Delmarva website 2016 Annual Report SNL Financial Confidential interviews with shareholders and analysts

Embassy Bancorp, Bethlehem, PA (EMYB)

A Case of a Dynamic Duo in the Steel City

The two in charge at Embassy sure know how to pack a punch. This is one bank that I believe could get 150%-160% of book value in a sale. If this pair succeeds in growing book value to over $8 over the next three years, a sale would present a really nice opportunity to double one's money.

And given the Chairman's previous experience selling Ambassador to Fulton in 1998, I think it's reasonable to anticipate that the bank will sell when the price is right. That being said, at a discount to book and only 8x earnings, EMBY will almost certainly make shareholders money even if the bank never sells.

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Disclosure: As of this posting, I own shares of EMYB and may subsequently either dispose of them or purchase more.

Prospective Buyers	In addition to the obvious neighborhood heavyweights, F. N. B. Corp (FNB) and M & T Bank Corp (MTB), each of these three banks has good reason to be interested in Embassy, given its 5% share of the deposit market in both Lehigh County and North Hampton County First Niagara Financial, Buffalo, NY (FNFG) - acquiring EMYB would double FNFG's deposit market share in Lehigh and make it #2 in the county Fulton Financial, Lancaster, PA (FULT) National Penn Bancshares, Boyertown, PA (NPBC) - acquiring EMYB would make NPBC #1 in North Hampton and a solid #2 in Lehigh
Financial Snapshot (as of 03/31/2013)	Total assets: $636M Tangible book value per share: $7.07 NPAs to assets: 1.5% Price to book: 95% Market cap: $47M Dividend yield: 0.6% Trailing 12-month return on assets: 0.92% Trailing 12-month return on equity: 12.9% TARP: $0M
Luminaries	David Lobach, Jr, Chairman, President, CEO Judith Hunsicker, Senior Executive VP, Secretary, CFO, COO
Gold Stars	I just love how efficient and committed Embassy is! Just look at how many jobs the two leaders at the helm take on their own shoulders. Here are a few numbers that speak volumes, as well. Employees per branch. With just 70 employees across its 7 branches, Embassy is operating 30% to 90% more efficiently than its peers. M & T has almost twice as many employees per branch (19) First Niagara, Fulton, and National Penn have 30% more per branch (13) Assets per employee. With a whopping $9.2M in assets per employee, Embassy is operating 50% to 100% more efficiently than its peers Fulton has half the assets per employee ($4.6M) First Niagara is managing a third less assets per employee ($6M) National Penn and M & T aren't managing any more, with $5M and $5.7M in assets per employee each, respectively Insider ownership. With insiders owning an impressive 32% of EMYB stock, Embassy managers and directors are 3x to 20x as invested in their bank's success as their peers are in their own Fulton and First Niagara insiders own a measly 1.5% and 2% of their own FULT and FNFG stocks, respectively M & T and National Penn insiders, although wildly beating the average bank's level of insider ownership with 10% and 20% of their respective MTB and NPBC stocks, still fall far short of Embassy's impressive level
Sources	Embassy Bank website 2012 Annual Report 2012 Annual Meeting and Proxy Statement SNL Financial Confidential interviews with shareholders

Harvest Community Bank, Pennsville, NJ (HCBP)

A Case of Self-Dealing on the Banks of the Delaware River

Wouldn’t shareholders of Harvest Community be best served by a sale, e.g., at 120% of book value, $15/share? From a stock that’s trading at $3.5, looks to me like shareholders could make a 300% return if they could convince the bank board to do the right thing, instead of wallowing around between $3 and $5 per share while officers and directors line their own pockets.

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Disclosure: As of this posting, I own significant shares of HCBP and may subsequently either dispose of them or purchase more.

Prospective Buyers	Penn Bancshares, Pennsville, NJ (PEBA) In late 2005, the Fed gave PEBA permission to buy up to 24.89% of Harvest Community Bank Elmer Bancorp, Elmer, NJ (ELMA), a local bank that’s doing well for which this acquisition would represent a great in-market transaction Fulton Financial, Lancaster, PA (FULT), also has branch overlap that would make an acquisition like this logical
Financial Snapshot (as of 12/31/2011)	Total assets: $191,554,000 Tangible book value per share: $12.76 NPAs to assets: 6.7% Price to book: 37.6% Market cap: $5.5M Dividend yield: $0.00 Trailing 12-month return on assets: -1.05% Trailing 12-month return on equity: -12.6%
Scoundrels	Michael Williams, Chairman of the Board Dennis Engle, CEO Jenny Engle, CEO’s wife Entire Board of Directors, the 12 joint owners of Wheat Properties LLC
Red Flags	CEO Dennis Engle only owns 1050 shares of stock outright, and was paid $188K in 2011 Engle led shareholders to believe Harvest Community Bank was having a great Q4 2011, when in fact it lost $4.2M pretax, a loss greater than the previous five years' earnings combined The Directors as a group own an entity called Wheat Properties LLC, which purchased the branch building in Salem City on October 20, 2000 for $240,000, for which the bank pays $79,925 per year in rent — a nice fat 33% annual return for the Directors. Google searches for "Wheat Properties" suggest great efforts have taken to keep the entity under the radar, and reveal little, other than: Harvest Community used one of its Director’s law firms, which billed it $187,393 over the last two years. The bank also made payments to JKE Marketing—a company owned by Dennis Engle’s wife Jenny Engle—of $88,020 over the last two years. Is this President’s Message from the bank homepage the sort of thing Jenny Engle is getting $44,000 a year to produce for shareholders, I wonder?
Sources	Harvest Community Bank website 2011 Form 10-K* 2012 Proxy Statement* www.jkecommunications.com Confidential interviews with major investors * NOTE: Although public companies usually readily post their annual reports and proxy statements on their websites, Harvest chooses not to. If you'd like your own copy, you'll need to contact rturmol@harvestcommunitybank.com